One of the biggest misconceptions about bankruptcy is it causes irreparable damage to your credit report. And while it’s true that creditors won’t trust you immediately after a bankruptcy filing, rebuilding creditor after bankruptcy is definitely possible.
The fresh financial start that bankruptcy affords you gives you a chance to restore your credit and prove to creditors that you are financially reliable. You may have plans to eventually buy a home or car or start a business. Whatever your next steps are, a good credit score will probably help.
In this article, we will explore what you can do now to begin rebuilding your credit after bankruptcy. To learn more, contact the Law Office of Jack G. Lezman, PLLC today.
Does Bankruptcy Actually Ruin Your Credit?
Bankruptcy will adversely affect your credit, but it is neither a permanent or unchangeable condition. If you filed for Chapter 13 bankruptcy, your bankruptcy will be on your credit report for seven years. If you filed for Chapter 7 bankruptcy, your bankruptcy will stay on your credit report for ten years.
Chances are that your credit prior to filing for bankruptcy was in bad shape. Unpaid bills and credit card balances on your credit report have likely already damaged your credit.
But don’t despair. There are actions you can take to rebuild your credit. You can act now to balance out the bad with good on your credit report. You will eventually benefit from the fact that creditors give more weight to recent credit history than past issues.
4 Ways to Rebuild Your Credit after Bankruptcy
Taking advantage of the fresh start afforded by bankruptcy to get your good credit back is smart for many reasons. First, it will help you with large purchases you make or business ventures you start in the future. Second, it will give you the skills and mindset you need to avoid getting into financial trouble again.
Here are four actions you can take today to provide yourself a more secure financial footing:
#1: Repair Your Credit Report
After your bankruptcy is completed, you should make sure negative marks on your credit report are removed. Missed payments, overdrawn credit limits, and collections accounts should be taken out or closed once they’re settled through bankruptcy.
Creditors may be slow to update this information on your credit report. So, it will be up to you to make sure they clean up your credit report.
#2: Apply for a Secured Credit Card
To strategically and slowly start building better credit, you will need to open a secured credit card account. Secured credit cards work by giving you a line of credit for the same amount that you pay the creditor. So, if you pay the creditor $100, you can draw down the $100 to make purchases. But, you must pay the $100 back. The $100 you originally put down is collateral that the creditor can take if you fail to make payments.
This may sound like an absurd thing to do. But, it is a good way to demonstrate that you can make payments and repair your credit. Just make sure you pay your monthly secured credit card bill promptly and maintain a zero balance.
#3: Obtain a Secured Loan
Repairing your credit after bankruptcy will require that you manage a diverse mix of debt. In addition to credit cards, you might want to take out a secured loan that you can easily pay back.
Secured loans can be small personal loans where you borrow against funds you deposited into a credit union or community bank. You can’t access the money until after you’ve paid off your loan.
Secured loans can also be made without any upfront cash. The loaned money is put into a savings account and released only after payments have been made.
Make sure all your loan payments are made on time every month. The banks will send a report to the credit bureaus about your payment history. So, your credit will improve with each loan you pay off on time.
#4: Monitor Your Credit
As you make your way towards financial health, you should take time to monitor your credit report. Your credit will improve over time if you repair your credit report and pay off secured credit cards and loans.
You can monitor your credit by using a credit monitoring service. Signing on with a credit monitoring company will allow you to check your credit score regularly. It will also show whether the actions you’re taking are having the effect you desire. Ultimately, you will be able to know if your credit is good enough to buy a home or car or start a business.
A Charlotte Bankruptcy Attorney Can Help You in Rebuilding Credit After Bankruptcy
If you’re considering bankruptcy or want to learn more about restoring your credit after bankruptcy, we can help. At The Law Office of Jack G. Lezman, PLLC, we understand what you need to gain a fresh financial start. Contact us today to learn more.